The Australian Government has today formally announced a net-zero emissions reduction target by 2050, with updated emissions projections suggesting that Australia will achieve a 30% reduction on 2005 emissions levels by 2030 under current policy, or a 35% reduction with the inclusion of the Technology Investment Roadmap.
Prime Minister Scott Morrison will now fly to Glasgow armed with a new net-zero target by 2050, yet will not announce a stronger commitment to reduce emissions by 2030.
From a market perspective, the real-world impact of Australia’s net-zero target will be negligible unless it is legislated and embedded into existing policy – most notably the ERF and the Safeguard Mechanism – which is unlikely to occur. As a result, the newly announced target will not translate into scaled up ambition for Australia’s carbon market, or increased demand for Australian Carbon Credit Units (ACCUs).
The elephant in the room therefore remains the lack of a clear climate policy framework to set industrial facilities on a pathway to net-zero emissions, with high emitting companies reporting under the National Greenhouse and Energy Reporting scheme (NGERs) contributing over 60% of national emissions, and industrial facilities covered by the Safeguard Mechanism making up 27% of Australia’s total emissions. For the corporate segment, voluntary action in response to increasing stakeholder pressure will therefore remain the key driver of internal and external emissions reduction decision making, rather than federal policy.
Voluntary action has been highly supportive for the Australian carbon market, however, voluntary action alone will not be sufficient to reach net-zero emissions. While stretch targets for technology can play a supporting role, more robust demand-side mechanisms will be required drive investment and uptake by industry.
We continue to anticipate that today’s announcement will provide further positive momentum for local ACCU prices. While the fundamental impact of the announcement is negligible, sellers are likely to become increasingly bullish as they leverage the positive macro story and tight supply conditions to drive prices higher.
To access our latest Carbon Market Outlook, including our scenarios for ACCU price development under net-zero emissions, please click here.
The RepuTex Team
Australian Energy Markets